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Strategic Milestones

Lazaro Campos, Head of the Banking Industry Division, SWIFT (La Hulpe, Belgium)

Last year, the theme of the Sibos conference in Singapore was the rather somber "New Realities." Now, as financial institutions look beyond immediate challenges and take a long-term strategic posture, the new theme, "Time for Growth," has never been more apropos. Lazaro Campos, who previously headed SWIFT's marketing efforts and now oversees the banking industry division for the bank-owned messaging and standards organization, spoke with BS&T Senior Editor Ivan Schneider about recently met milestones, growth strategies and standards initiatives.

BS&T: SWIFT recently passed the 10-million-message mark for a single day, which represents a tripling of volume over the past seven years. What's the next milestone, and when will SWIFT reach it?

Campos: I don't think we set milestones in advance. In terms of traffic, what we really want to do now is to make sure that we launch the SWIFTNet business solutions that we're working on, and see traction with those. So it's more project-related than traffic-related.

Our SWIFT 2006 strategy gives us some sense of the volumes that we want to achieve, and that would have us triple our volumes in the period 2001 to 2006. But for us, it's more strategic to make sure that those new activities that take us beyond our traditional store-and-forward messaging with FIN are successful. Those are programs that have to do with how we support pre-trade in securities with FIX, the way in which we want to support funds administration, our trade services utility in international trade, and with the cash reporting initiative in payments. It's more specific to the business areas, where we are putting chips on, if you wish, new solutions that take us beyond the role we played in the past.

BS&T: To what extent have new members driven growth in message traffic?

Campos: New members keep coming on steadily. We add about 300 new customers every year. But the real growth comes from two different parts: one is market activity, and then the other is market infrastructure activity. For example, this year in the payments area, we added the real-time gross settlement [RTGS] system in Italy, and the Austrian RTGS. Both of them have brought significant traffic in payments.

Going forward, we're looking to support TARGET2 in the European framework, and the Fed and CHIPS in the U.S. Those infrastructures, when they join too, will have a significant impact in volume growth.

BS&T: What type of partner arrangements do you have in various regions, and how do those work?

Campos: We do use what we call "business partners" in different countries - mature or emerging. It's a channel that extends their own set of assets. We agree to targets with them every year, and they go and get those customers connected to the network. We have a marketing arrangement with them by which they get a commission out of those sales.

It's not, in the strict sense of the word, a commercial arrangement. It's more a partnership, because we care about the way in which they deal with their customers, and we integrate them into our own processes. For example, every year we run a sales meeting in February for our global salespeople, and we invite them there, too. From our own perspective, we want them to feel part of the family. They may not be direct employees of SWIFT, but we want them to act as if they were.

In Russia and the CIS [Commonwealth of Independent States], we have a partner called Alliance Factors. They operate out of Moscow and they have a full team of people dedicated to SWIFT networks. They are as knowledgeable as our salespeople, and they take care of that set of countries. They can speak the [local] language, they're local, they understand the back-office environments, and they can offer integration services as well. That is a good extension of our activity

We're a small company, with 1,700 people worldwide, and we really need to get going in different countries. So it makes sense for us to use this extended footprint that minimizes cost to the entire cooperative, provided we can have that tight relationship.

BS&T: The SWIFTNet Exceptions and Investigations Business Validation Group is working on standards for payments investigations. What exactly are they doing, and what impact will their activities have on banks and software providers?

Campos: It really comes out of the cash reporting work that we started a couple of years ago. It's not sufficient to simply make payment instructions - you have to make sure that they get executed and that you manage the exception handling process.

The study we conducted before we launched the investigations solution was understanding how back offices work today and the cost to our customers of using non-STP payments or non-STP transactions. Although there are standards out there, there are still transactions that fail. What we saw is that at least 40 percent of those transactions that fail, fail because of some very simple issue. We believe those things can be automated and dealt with in a way that does not require manual intervention.

We started with payments because we have to start somewhere, and this comes out of the cash reporting work that we did. But over time we would want to cover other investigations beyond payments - treasury, securities and trade.

BS&T: How has SWIFT gotten involved in other industries outside of banking?

Campos: We believe that standards are only as good as they are end-to-end. Thirty years ago, we started standardizing bank-to-bank communication. Well, those transactions very rarely start at the bank. The bank is, in many cases, an intermediary. So we really want to define standards that take into account all the players in the transaction.

In payments, for example, we needed to make sure that ERP [enterprise resource planning] systems - SAP, Oracle and others - ship out from the back offices the right information, so banks can then execute the payments based on that information. That means we also have to standardize the way in which ERP systems send out information. So we created a standard, getting together not only the banks but also the corporate customers. Then, we stand a better chance that SAP and Oracle and others in that ERP space actually automate based on those standards.

That's why we got together with a few of the active groups, mostly led by corporates, like the RosettaNet group and the TWIST group, to create the core payment kernel, which contains those minimum elements of data that define a payment, regardless of the industry. Be it in automotive or the semiconductor industry, there are common elements. If you can agree to that - which we have done now - ERP systems can standardize on that. Of course, there will be peculiarities in the automotive industry that are different from those of the semiconductor industry. But still, a payment is a payment and there are commonalities. It takes time to get everybody rallied around those standards, but at least now there is a single version.

BS&T: In the past, haven't banks made a good living by handling exceptions in a labor-intensive way?

Campos: Yes, but I believe the cost pressures and price pressures are getting to them as well. They have to find a way to diminish their back-office costs, and manual labor is the most expensive form of it. As you can see in any other industry, customers want more for less, and the suppliers, in this case, need to shape up their systems.

What corporate customers want is predictability and transparency. And to do that you really need to have good MIS. You need to have good systems that allow your customers to know what they need to know, all the time. They're looking for the simplest integration of their systems with those of the banks, predictability for them to manage their own cash flows, and they also want transparency so that they know where the payment is stuck, if it is anywhere.

BS&T: Assuming banks achieve that kind of transparency and stability, what becomes the competitive differentiator for banks?

Campos: For a period, the quality of implementation and the adoption of those standards will be a differentiator. But over time, that will be a cost of being in business. You have to have a certain level of efficiency before you are accepted as a player. That is no different from any other industry.

Once you come in with a new standard, those who are early adopters of it may benefit faster and differentiate, but over time the bar just gets raised. At the end of the day, it's the overall service proposition to the customer that makes a difference. It's not how they manage one payment or one investigation. It's, "How does ABN AMRO support a large corporate that has interests in many countries?" By helping them handle the standard business in more efficient ways, they can concentrate on creating new propositions for their customers that really do make them different.

Initially, there may be a level of differentiation, because somebody buys into this much faster and their systems are more proficient. But over time, it washes away, the bar gets raised and it's expected that everybody operates in the same way.

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